Contract of Employment

This comprehensive guide covers all aspects of the contract of employment – a primary agreement that forms the basis of a relationship between employer and employee.

In terms of physical documentation, employers are legally required to give all of their employees a written ‘statement of main terms’. In addition to this, the contract of employment also covers verbal agreements and implied terms.

The contract of employment, statement of main terms and employee handbook together provide a framework for the employment relationship and detail important procedures for both employer and employee to follow, such as raising grievances.

There are other pieces of information that can be included and we recommend that you seek the advice of an HR and employment law expert if you wish to create a watertight statement of main terms.

The statement of main terms is commonly accompanied by an employee handbook in which the employer can include detailed rules of employment and any other important information the employee needs to know outside of the main employment contract.

The Acas employment contract guidelines

As the primary written agreement documenting the nature of the working relationship between employer and employee, it’s important to the employment contract right for every member of staff.

With so much necessary detail required by law, as well as the recommended inclusions for best practice, we recommend cross-referencing your approach with the established Acas guidelines on employment contracts. This ensures that every possibility is covered and that a clear agreement is in place that serves the interests of both parties involved. Peninsula often support companies by forming a solid employment contract that incorporates every aspect of best practice recommended by Acas.

Employee Entitlements

An employee has the right to know how much they will be paid, how often they will be paid and in what format they will be paid e.g. directly into their bank account.

These details are normally contained in the contract of employment, or the employee handbook.

Employees are also entitled to receive an individual, detailed payslip from their employer. Payslips must contain the amount of the employee’s wages before any deductions (gross), the details of any deductions (fixed and variable), the net amount of wages and details of any part payment of wage.

Employers are prevented from making unauthorised deductions from the pay and wages of their employees and can only make deductions in specific situations. This usually requires the express written agreement of the employee.

Bonuses and incentives

Incentives or bonuses are contractual, discretionary or some combination of the two. The details of any incentive schemes should be specified in the terms of the employment contract.

Bonus policies and schemes can be incorporated into your employees’ contract of employment. Once agreed to and signed, these policies are to be considered as contractual terms or conditions that stipulate the exact terms of any bonuses or incentives that the employee is eligible to receive.

To subsequently fail to comply with a term in a contract is a breach of contract and the law provides for recourse against the guilty party. Some contracts have a clause saying that a contractual bonus will not be paid if employment is terminated ‘for cause’, such as alleged gross misconduct or if an employee is not in employment on the payment date.

To introduce a change to a contractual scheme, it is essential that you get your employees’ agreement in advance of taking any action. Undertake consultation with your employees; this includes informing them all of the intended changes and making sure they can discuss any particular concerns with you.

Holiday pay entitlement

Holiday pay entitlement varies from business to business, depending on the contracts of employment that you draw up. However, employees are entitled to a minimum of 5.6 working weeks of paid holiday leave; this is pro rata for new or part time staff. This works out as 28 days for employees working five days a week.

When it comes to holiday pay, those 5.6 weeks should be given at the same rate of pay as any other week. As a result, employees should be taking home the same amount of pay every month.

Pension entitlement

By 2018, all employers must automatically enrol their eligible employees in a workplace pension scheme. For all new employees, the terms of this pension agreement must be detailed as part of the employment contract.

Working time regulations

Working time rules are one of the key areas of business management and, in some cases, one of the easiest to slip up on.

In industries where night shifts, working overtime or being on-call are a matter of course, documenting working time rules as part of an employee’s contract of employment is an essential consideration.

In most instances, the maximum working week must not exceed an average of 48 hours unless there has been an agreement to opt out.

In addition to this, there is an entitlement to 24 hours consecutive hours rest in each 7 day period.

There is also an entitlement to a 20 minute unpaid rest break for a shift of more than 6 hours.

The rules for young workers (aged 15-18) differ. The maximum working week is 40 hours, with no option to opt out, and at least 12 hours of rest per 24 hours. There is also an entitlement to a 30 minute break if working over 4.5 hours.

Sickness Absence

From the start of employment, employers must make clear in the contract what is expected of their staff members in the event of sickness – and what they can expect of the employer.

For example, an employer can insist on the employee phoning in at 9 a.m. to report their absence, not waiting till 10 a.m. or sending a text message or email.

Sickness pay

There is a minimum statutory sick pay (SSP) that employers must pay eligible staff if they are sick for four or more consecutive days (regardless of whether they are working days). Employees will also need to have informed the employer of the sickness within company guidelines.

The government sets the SSP rate and this is the minimum rate. Some employers operate a company policy whereby they pay the normal wage if an employee is off sick, perhaps up to a number of weeks. Employees are not entitled to statutory sick pay if they are being paid statutory maternity or paternity pay.

Disciplinary and Grievances

Failure to follow clear disciplinary and dismissal procedures may result in an unfair dismissal.

To avoid this risk, it is vital that employers ensure all employees are aware of the relevant procedures in place as part of the employment contract and induction process.

Even in cases of gross misconduct, a clear procedure must be followed in order to determine a fair dismissal and the employee must always be given the chance to have their say. The idea of an instant dismissal – ‘you’re fired, pack up your desk’ – is hardly ever appropriate or advisable.

Employee lateness policy

Having employees arrive on time to work is vital for all employers and the day-to-day productivity of any business. Rules on employee lateness must be made clear in the employment contract signed by each employee, to avoid any issues further down the line.

Habitual lateness is not only unprofessional; it is effectively a breach of employment contract and must be addressed by the employer as soon as possible. Time is money, as they say, and absenteeism equates to lower productivity.

Damage to company property

From the outset, employers should make staff aware of company policies on damage to property.

This information should be included in every standard employment contract, signed and agreed by each employee. The contract of employment forms a crucial reference point for an employer when asking a member of staff to cover the cost of any damages.

Grievance policy

By law, employers must provide their staff with a method of dealing with grievances in an appropriate manner. Grievance procedures are therefore a crucial reference point when resolving disputes raised by staff and provide a clear structure to follow if an issue should arise.

This policy usually forms part of the employment contract or employee handbook. Even if a procedure is not documented in writing, the employer’s responsibility to properly deal with a grievance is an implied term of the contract of employment.

Recommended procedure

A well-formed grievance procedure should aim to include these steps as standard:

Submit a formal written letter that details the grievance

A formal meeting will be arranged to discuss the issue in detail

The ability to appeal an employer’s decision

It is also the duty of the employer to address grievances in a timely manner; left unresolved, these issues could result in a tribunal claim against the employer.

Contractual Stipulations

Probationary period

Employers often include a provisional probation period in the employment contract – generally between one and three months – when taking on a new recruit.

This ensures that the person is happy and capable of fulfilling the responsibilities of their new role, whilst also defining a clear structure and time period for their employer to identify areas of improvement.

Notice period

There are two types of notice period: statutory and contractual.

While statutory notice is required by law and depends on an employee’s length of service, contractual notice periods are company policy that must be specified as part of the main terms and conditions of employment. This period can be the same as, or longer than, the statutory minimum, but not shorter.

Compulsory overtime

Compulsory overtime is a contractual obligation which clearly states that the employee is required to work additional hours, often on a regular basis.

Just as employers must include accurate detail of normal working hours in the main terms of the employment contract (see working time regulations), they must also include reasonable detail of expected compulsory overtime.

Shortage of work

There are times when, due to a shortage of work, the employer may need to introduce lay-offs or short-time working. These can be more attractive options than carrying out redundancies where the shortage of work is only temporary.

However the employer must first check that they have a clause in the contract of employment which allows them to impose lay-offs or short-time working otherwise they do not have recourse to such an option.

Changing terms and conditions

There may be times when it becomes essential for an employer to change the terms and conditions of an employee’s employment contract, or to collectively change the terms and conditions of all the employees’ contracts – otherwise known as ‘varying contracts’.

It is possible for an employer to change terms and conditions; however, it cannot usually be done without consultation and agreement from employees. If the change in terms and conditions will potentially lead to redundancies, and there are 20 or more employees potentially affected, trade unions or elected representatives will need to be involved.

It is vital to check what is in the original documents and consult as far as possible on any potential changes to be made. Failure to do so may lead the employee in question to take legal action against the employer.

Winning contracts

When a new contract is won it is important to assess whether TUPE comes into play.

TUPE stands for Transfer of Undertaking (Protection of Employment) and protects employment rights in the event of a business transfer or service provision change. Prior to this under common law, when a business was sold, existing contracts of employment terminated and the new employer could choose whether or not to employ any of the original staff.

If a group of employees are grouped together with the aim of pursuing an ‘economic activity’, then they form an ‘economic entity’. If that entity transfers to a new owner, so do the employees. The employees retain all their contractual rights and obligations, even where these differ from other employees already employed by the transferee.

The new employer (the ‘transferee’) acquires all the rights and liabilities associated with those employees.

Ending a contract

Ending a contract of employment represents the end of an employee’s duration with an employer. Depending on the case, the decision may be made by the employee, the employer, or mutually agreed upon by both.

In the event of the employer ending a contract, clear and agreed procedures must be followed. It is strongly recommended that advice is taken from an expert as early as possible to minimise the employer’s risk of being accused of unfair or wrongful dismissal.